I have handled a lot of Florida Department of Revenue (FDOR) criminal investigations. It does not take much experience to see that the FDOR “likes” to investigate businesses that work with or through the Florida Department of Motor Vehicles and Highway Safety (DMV). As the FDOR investigation is likely to assert the crime of theft of state funds, the FDOR investigator will need to prove that a taxpayer/business collected sales tax and failed to remit it. With the DMV being a cooperative “partner” with the FDOR, the DMV allows access to its records for the FDOR to compare sales tax information per DMV registered vehicles against business sales tax returns. When less tax has been reported on returns when compared to DMV information, the business is investigated. This seems to happen more often than a sales tax audit. The differences are significant but can be the topic of another article. This article addresses FDOR investigations and how they could be targeted toward the vehicle registration industry.
From the introduction above, you can quickly identify that car dealers would be prime candidates for an FDOR investigation. That is clearly the case. The DMV will have sales tax information for sales based on a dealer’s license number. That allows for easy and quick analysis for the FDOR to at least suspect under reporting or collected and unremitted tax – which would be the basis of a violation of section212.15(2), Florida Statutes (“F.S.”). However, when recently working on an investigation, a discussion on the vehicle registration industry arose. This should raise flags for businesses or clients in that industry.
The vehicle registration industry routinely registers vehicles from out of state sales for vehicles to be licensed in the State of Florida. While I will mention “vehicles,” this could also apply to boats or other titled property with the DMV. The investigator noted that it would make “sense” to investigate the industry since there would be a high likelihood that these businesses are not registered with the FDOR. The Department would be set up to make quick findings for the registered vehicles for the business per DMV information against unfiled returns where the FDOR would question accurate reporting based on no “control” information to test it against. The FDOR will “expect” there to be unremitted tax and it is not hard to imagine a host of possible errors that could result in underreporting.
The vehicle registration services industry would be subject to Florida criminal statutes despite not selling a single vehicle in the state of Florida. By the nature of receiving collected sales tax from an out of state business, the reach of section 212.15,F.S., could become applicable. Section 212.15, F.S., provides “[a]ny person who, with intent to unlawfully deprive or defraud the state of its moneys or the use or benefit thereof, fails to remit taxes collected or paid on behalf of a purchaser under this chapter commits theft of state funds” and imposes felony sanctions based on the amount of tax allegedly collected but unremitted. A third degree felony exists for collected but unremitted tax (stolen revenue) of $1,000 but less than $20,000. A second degree felony applies to collected but unremitted tax of $20,000 but less than $100,000. A first degree felony covers collected but unremitted tax of $100,00 or more. With inflation driven vehicle prices, it does not take many deals to rise through the felony ranks if there are even “modest” reporting errors that result in underreported tax.
The Department will be able to get tax totals from the DMV. This will give an easy starting point for investigation. Should the business fail to pay the tax for any reason, then the FDOR will necessarily assume a systematic case of underreporting based on the lack of returns to compare reported and paid totals to the DMV (assuming an unreported business). The DMV will not check for registration with the Department so it is easy to see that errors in failing to pay tax to the DMV could result in the accumulation of a large amount of collected and unremitted tax. This is what the investigator “presumed” fueling the speculation that the industry should be thoroughly investigated to confirm remitted tax from customers.
A business that assumed “intent” for a charged crime could not be established by a FDOR investigator would be underestimating the FDOR’s practice and procedures. The FDOR would cite to the registered vehicles and stated tax due and compare that to bank deposits that would be subpoenaed from the business’ bank. The deposits will surely exceed the amount reported to the DMV for tax on the sale. The Department will then work to track down payments – from bank statements or other sources – to indicate money was “knowingly” paid to others but not to the State. This is at least part of the FDOR’s findings that would go to the state attorney’s office for the filing of criminal charges if the investigation is not otherwise closed out.
FDOR investigations begin very quietly. There generally is no communication with the targeted business until late in the investigation process. Bank records will be received and analyzed and totals compared to DMV data (and DR-15 return totals if registered and filing). The FDOR will work to gather third party information – from vehicle buyers or dealerships – to show tax collected on the vehicles registered by the registration service provider. Only later in the process with the FDOR investigator contact the business to ask about records and a time to speak on the matter. It is likely the business is unaware how much work the investigator has done to this point – and the FDOR investigator is not likely to take any “threatening” tone during interactions. This belies the severity of what is going on. Punishment for convictions can include a fine up to $10,000 and up to 30 years in prison.
With the FDOR’s prevalent use of DMV information to conduct many of its criminal investigations, the vehicle registration services industry should be prepared for imminent criminal investigations by the FDOR. A review of reporting practices and analysis of possible exposure cannot occur soon enough. It could very well be too late to try and do this when you or your client receive the investigator’s business card. Take the time now to examine operations to see if errors might have occurred. If there are questions about exposure or accurate reporting, then seek immediate help to avoid the situation from getting worse. Delaying only makes the problem worse and the stakes higher.
About the author: Mr. Parker is a partner in the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice concentrates on sales and use tax and includes criminal defense of sales tax cases and state tax audits/controversies proceeding from audit through administrative litigation involving sales and use tax and all other state taxes including reemployment tax, communication service tax, and cigarette & tobacco tax. Mr. Parker also handles matters involving the Department of Business and Personal Regulation and Office of Financial Regulation and the industries they oversee. Mr. Parker received his accounting degree, law degree, and L.L.M. in Taxation from the University of Florida. You can lean more about Matthew on his firm bio.
About the law firm: At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
ADDITIONAL RESOURCES
FL DOR Sales Tax Criminal Investigations - What You Need to Know, published July 1, 2023, by Matthew Parker, Esq.
Florida CPAs - Your Client Owes Sales Tax and They will Blame You, published July 18, 2016, by James Sutton, CPA, Esq.
FL SALES TAX FRAUD – 12 USED CAR DEALERS ARRESTED, published July 12, 2014, by James Sutton, CPA, Esq.